On Wednesday of this week wholesale inventories rose an unexpected .3%. Wholesale sales were also up a surprising 1.2%. As mentioned in this note previously, sales being up faster than inventories is a good thing for our current situation. Friday will see the final piece of data when we get the report on retail sales and the final business inventory number is released. Unless business inventories take an unexpected plunge from the +.2% that is expected, estimates for the fourth quarter will be going up. Lyle Gramley, Soleil's Chief Economic advisor, commented if business inventories are as expected a "four handle" prediction will be in play.
To further emphasis the strength developing in this quarter, Thursday's trade deficit announcement showed an unexpected dip of $2.7 billion to $32.9 billion. Expectations were for $36.4 billion. The September deficit was revised down by $.8 billion as well. A declining trade deficit boosts real GDP. Exports rose in October by $3.5 billion and imports by $.7 billion. The trade deficit is more than $26 billion less than this time last year, and exports have grown at a better than 26% annual rate in the last six months reports my pal Brian Wesbury of FT-Advisors . Imports are also up 27% annually during that same time but it looks to me like the decline we have seen in the dollar is going to reverse that situation. Exports are up 12% from the trough they reached in April of this year but still 17% below their July 2008 peak. Imports are 11% off the bottom and 18% below the peak. If we are right on the direction of the estimates for fourth quarter GDP, the bond market is going to be upset. The dollar should continue the better path it has been on lately - especially against the Euro - and the stock market will cheer the possibility of a stronger economy and potentially better earnings.
Initial unemployment claims blipped back up last week to 474,000 from the prior week's 457,000. While it's a bit discouraging to see such a move, the four week moving average - which is a better gauge - moved down 7,200 to 473,750. We are still below the 500,000 level of just a few weeks ago and the downtrend looks intact. The decline in the four week moving average the past few weeks indicates that payrolls have stabilized. Continuing claims also fell to 5.157 million from 5.46. It has been posited that continuing claims were better only because people were dropping off the tail of benefits. But with the recent extension of unemployment claims and the better jobs number we had last month, at least some of the decline is due to people finding work. A drop in continuing claims is a sign that unemployment is approaching, or even at, a peak. To quote Brian Wesbury again, "The decline in initial claims the past six months is faster than the decline during the "jobless recoveries" in 1991-92 and 2002 signaling this recovery won't be jobless."
What I know about the gold market rivals only what I know about the opposite sex. Totally clueless in other words. But with the strength and activity in the gold market you have to have a semi-intelligent position on where the price of gold is going. The good folks at Capital Economics recently issued a report that can make even me sound like I'm on firm ground. The price of gold relative to the price of oil is close to its 40 year average. With gold at $1125 and the price of Brent crude at $73, the ratio is 15.4:1. The last 40 years have averaged 16:1. The price of the Dow Jones Industrial average to gold is 9.2:1 (Dow recently at 10337, gold at $1125) and the average since forever has been 10:1. In other words the price of gold is right where it should be and it might go up or down. Helpful?
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Vincent Farrell, Jr. is chief investment officer at Soleil Securities Group and a regular contributor to CNBC.